Healey To Propose Switch from DB to 401(k) for MA's
Public Pension System

June 7, 2006 (PLANSPONSOR.com) - Massachusetts
Lieutenant Governor Kerry Healey is expected to propose
Wednesday a change to the state's public pension system that
would trade traditional DB plans for savings accounts, which
would mean consolidating pensions in a state pension trust
and centralizing control of government pension
plans.

A confidential source working as a campaign advisor on
Healey’s gubernatorial campaign told the newspaper that the
lieutenant governor would make her announcement sometime
Wednesday. The source said Healey, if elected, would make
the plan a top legislative priority.

Healey is following the lead of states such as Alaska
and Michigan which switched over to 401(k)-type plans to
ease the burden on their stressed pension systems.
Alaskamoved to the plan in May to
lessen the system’s estimated $5.7 billion to $6.2
billion shortfall (See
Alaska Senate Refused Delay in Retirement Plan Overhaul
).

According to an outline of Healey’s plan, she estimates
that the combined effort of all the steps in the plan would
bring more than $350 million annually in investment gains
and administrative savings to the state’s current outdated
pension system, according to the Globe.

Healey’s plan would allow plan participants to open
individual IRA-style accounts, or they could invest their
money in state-run Pension Reserves Investment Trust (PRIT)
accounts, with a portion of the account matched by the
state. For more conservative participants, Healey’s plan
would offer the less-risky 10-year treasury bonds.

Most public-sector workers would have to contribute at
least 9% of their pretax pay into these accounts, the Globe
reported, and can annually contribute up to $15,000. The
proposal exempts newly hired police and firefighters.

Healey’s proposal includes handing over sole control of
the government’s pension plans, small and large, to PRIT,
which includes teachers pensions as well as the pensions of
most state workers, according to the Globe.

PRIT’s assets equal about $35 million, and during the
past decade, its assets have post an approximate11.59 %
annual return. Pioneer Institute, a Boston think tank,
found that PRIT also has performed sixth-highest out of 104
systems in the past two decades, the Globe reported. Also
Pioneer found that PRIT has out earned retirees’ regular
pension plans by about $1.6 billion in the past decade.